SoftBank to buy ARM for $32bn in record deal

SoftBank Group has agreed to buy ARM Holdings for £24,3bn (US$32bn; R460bn), securing a slice of virtually every mobile computing gadget on the planet and future connected devices in the home.

The Japanese company is offering £17/share in cash, or a 43% premium to the British company’s Friday close, according to a statement issued on Monday.

The deal would be the biggest-ever for SoftBank, which under chairman Masayoshi Son became one of Japan’s most acquisitive companies with stakes in wireless carrier Sprint and Alibaba Group.

SoftBank will gain control of a cash-generating mobile industry leader whose chip designs lie at the heart of everything from smartphones to servers and connected gadgets in the home. The British semiconductor house gets royalties when clients such as Apple, Samsung Electronics or Qualcomm adopt its designs, which are considered power-saving and efficient.

“As much as we hated the decision of buying Sprint, we believe if Son wanted to bet on the sterling recovering he picked a great name in the tech sector,” Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners, said in an e-mail. “The market will be seeing this acquisition in a positive light despite stretching its balance sheet further.”

SoftBank pledged to keep ARM’s headquarters in Cambridge and its senior management team, and to at least double employee headcount in the UK in the next five years. It will fund the acquisition partly through cash and loans, according to the statement.

Beyond its sheer scale, the ARM acquisition is unusual for a company that’s preferred to take control through hefty stakes in smaller companies, or those with high-growth potential. The chip designer alone will account for more than a third of SoftBank’s current total international holdings of Y8,3 trillion ($79bn) as of 15 July.

The deal will also be Britain’s largest since the country decided to depart the European Union, a historic move that weakened the pound against the yen.

It was SoftBank that approached ARM, which didn’t run an auction process, two people familiar with the matter said before the announcement. SoftBank had been considering a purchase of ARM before the UK’s decision to leave the European Union, and the so-called Brexit vote wasn’t a factor in the Japanese company’s decision to proceed, one of the people said.

ARM has come to dominate the design of smartphone chips and is pushing into servers to challenge Intel, evolving from a small lab in a converted barn to a company whose designs are found in 95% of smartphones. With the mobile phone market slowing, ARM is adding new customers in the automotive industry and targeting growth in processors for network equipment makers and servers. The company is also exploring chip designs to boost the graphics capabilities of phones.

Any deal for ARM comes less than a month after Nikesh Arora, Son’s heir apparent at SoftBank, quit the company. The former Google executive was brought on board to spearhead a search for the next Alibaba, the Chinese e-commerce company SoftBank backed that went on to pull off the world’s largest initial public offering in 2014.

SoftBank will now need to add to its massive debt load to see the acquisition through. The Tokyo-based company carried almost $106bn of total debt on its balance sheet at the end of March, but less than $23bn in cash and marketable securities.

However, the price tag may be justified because ARM’s dominance in mobile computing translates into consistent cash flow, and its hardware-light business model yields margins north of 95 percent in every quarter since late 2014, Anvarzadeh said. — (c) 2016 Bloomberg LP